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Suddenly, Everyone Wants to Be Groupon

How the Young Startup Has Become a Model of Success for Marketers

NEW YORK (AdAge.com) -- If imitation is the sincerest form of flattery, Groupon has a lot of admirers. From Walmart to a hotel in Scottsdale, Ariz., marketers have taken notice of the two-year-old Chicago startup that's amassed 25 million subscribers, and they are building new Facebook apps that look a lot like their own personal Groupons.

But if marketers big and small can do it themselves, where does that leave the original?

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Last week, Walmart launched a deals app called Crowdsaver that unlocked 18% off a $500 plasma TV once the deal got 5,000 likes. Crowdsaver puts "you in charge of lower prices. If the deal gets enough likes, the price drops for everyone," said the Facebook post. In less than 24 hours, the deal got enough likes, so it will be redeemable.

In October, ConAgra brand Healthy Choice launched a coupon that increased in value as more people liked it on Facebook.

"We looked at how successful the Groupon concept has been and how important coupons are to our community," said Genevieve Mazzeo, manager PR-social media for ConAgra Foods. The discount went from 75 cents off to $1.50 off to buy-one-get-one. "It was a way to engage them differently and give them something they want: a coupon and reason to share."

At a basic level, that's what Groupon has done since it launched in 2008: post a deal that only kicks in if a certain number of people commit.

Groupon launched in Chicago with an email-based service for local deals -- pay $75 for a $150 massage, say, or $20 for $45 on a restaurant bill. Once enough customers put money down, the deal goes through and everyone's credit card gets charged. If not, the deal disappears, no one is charged, and a new offer is sent out the next day. Groupon has since expanded across North America, and this year, largely through acquisition, it has set up shop in Europe, Japan, Russia and Latin America.

Both Walmart and ConAgra had other factors in mind than just the awareness and sampling that Groupon creates.

The Healthy Choice deal encouraged trial for a product, like paper coupons do, but it also increased the brand's Facebook fan base 10 times. For Walmart, the "do you want this?" mechanism was also meant to cede a bit of control to customers.

"Group shopping and group deals are happening anyway at Walmart; this just puts a different container around it," said Wanda Young, Walmart senior director of digital strategy. "Voting on a specific item puts an aspect of control in customers' hands."

Ms. Young doesn't deny that testing a sale online helps a retailer determine if a discount could reach the critical mass needed to make financial sense. "The economics about the way Walmart approaches buying are always at play," she added.

"I wouldn't be surprised if we see more retailers try their own derivations [of flash sales and Groupon]," said Andrew Lipsman, an analyst for ComScore. "It lowers the risk for retailers if they can guarantee a certain volume for a deal."

For its part, Groupon doesn't feel threatened by national marketers building their own group deals, said Groupon spokeswoman Julie Anne Mossler. In fact, it's made its own plays for big marketers. In September, it synced up its network for the Gap in its first national deal, which grossed $11 million.
But such deals are not the core of Groupon's offering.

"We're never going to stray from doing local marketing, but national deals are an extra bonus for our subscribers," Ms. Mossler said.

Local businesses now also have the tools to set up their own versions of Groupon deals. The W Hotel in Scottsdale recently launched its own group deal in an app on its Facebook page: If at least 10 people sign up, they all get nearly 50% off a $295 room rate. Twenty-eight people eventually booked rooms, and the deal was on.

The hotel used a plug-and-play tool from the Palo Alto-based app developer Wildfire to build the deal. Since the tool launched in July, mostly small and medium-sized businesses -- arguably a slice of Groupon's core client base -- have used it, said Curtis Kroeker, Wildfire's VP-business development. Marketers set the deal parameters themselves and host the apps on Facebook pages or websites, so they can make group buying a more frequent part of marketing strategy than just the sole Groupon email, he said.

"[Group buying sites like Groupon] are [based on] one-time demand for companies or brands," said Mr. Kroeker. "There's a need for businesses to have group deals be more of an ongoing part of their marketing efforts and to also set their own terms."

Groupon takes about half the revenue a deal brings in for sending and creating deals, but with Wildfire, marketers only pay a fee for the technology.

Still, Groupon wields the power of 25 million people counting on deal emails delivered to their inboxes day after day. Without such emails, marketers still need potential customers to find their deals in the first place. One small business, Giant Nerd, used the Wildfire tool but couldn't get five people to buy a $1,000 bike for $450.

"We created the space, we innovated [in] the space; whether it's a national brand or a competing deal site that's essentially copied the model, that's not a threat to us," said Groupon's Ms. Mossler.

GROUPON'S GROWTH

November 2008: Launches in Chicago.

Spring 2009: Expands to New York, Boston, San Francisco and Atlanta.

Summer 2009: Adds about two U.S. cities a month.

December 2009: Founder Andrew Mason tells Ad Age Groupon was profitable in June. He anticipates $100 million in revenue for 2010.

May 2010: Acquires Citydeal, which added 80 markets in 16 countries in Europe and Latin America to its existing 60 cities in North America.

August 2010: Two additional acquisitions to move into Japan and Russia.

September 2010: Runs its first national promotion with Gap, which sells 445,000 deals for $11 million.

Today: 25 million subscribers worldwide with 15 million in North America. The company is on track for $500 million in revenue, according to Morgan Stanley via Forbes magazine.